2004 (10) TMI 607 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) over the assessee.
2. Nature of the payments made to travel agents - whether they constitute commission or discount.
3. Applicability of Section 194H for Tax Deducted at Source (TDS) on payments to travel agents.
4. Consequences of non-deduction of TDS under Section 201(1) and interest under Section 201(1A).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) over the assessee:
The assessee contended that the AO had no jurisdiction over them based on the provisions of Section 124 of the Income Tax Act and a notification dated 14.09.01 by the CBDT. The assessee argued that they were not a company registered under the Companies Act, 1956, nor was their registered office in the NCT of Delhi. The Tribunal noted that the jurisdictional issue should be determined by higher authorities as per Section 124(2) of the IT Act. The Tribunal refrained from adjudicating on this issue, emphasizing that the AO's jurisdiction could not be questioned in this appeal.

2. Nature of the payments made to travel agents - whether they constitute commission or discount:
The assessee argued that the payments made to travel agents over the net fare should be treated as a discount rather than commission. The Tribunal examined the example provided, where the net fare was Rs. 60,000, and the travel agent sold the ticket for Rs. 80,000, retaining the Rs. 20,000 difference. The Tribunal concluded that this amount represented the travel agent's income due to their own efforts and not as commission paid by the assessee. The Tribunal emphasized that the excess amount realized by the travel agent was not for services rendered to the assessee but was due to the agent's own selling capabilities and market conditions.

3. Applicability of Section 194H for Tax Deducted at Source (TDS) on payments to travel agents:
The Tribunal analyzed Section 194H, which mandates TDS on income by way of commission or brokerage. It noted that the definition of "commission or brokerage" includes payments for services rendered. The Tribunal concluded that the excess amount realized by the travel agent over the net fare did not constitute commission as it was not a payment for services rendered to the assessee. The Tribunal also noted that the assessee was not responsible for paying this amount to the travel agent, and there was no credit or payment of such excess by the assessee to the travel agent.

4. Consequences of non-deduction of TDS under Section 201(1) and interest under Section 201(1A):
The AO had treated the assessee as a defaulter under Section 201(1) for not deducting TDS on the supplementary commission and levied interest under Section 201(1A). The Tribunal concluded that since the excess amount realized by the travel agent was not commission, the assessee was not liable to deduct TDS under Section 194H. Consequently, the order treating the assessee as a defaulter and levying interest was set aside.

Conclusion:
The Tribunal set aside the AO's order treating the assessee as in default under Section 201(1) and levying interest under Section 201(1A). The appeal was allowed, concluding that the excess amount realized by the travel agent over the net fare could not be considered as commission, and the assessee was not responsible for paying such commission.